Protecting Assets in Bankruptcy

Will I lose my car if I file bankruptcy? Am I allowed to have money in the bank? I don’t even have any property. We get a lot of questions and comments just like these every day.

            Everyone owns property, from clothing and a cell phone to cars and a house. Whether or not there is something someone could possibly lose in a bankruptcy depends on what chapter they are filing, what state they live in, what kind of property they have and the value.

At MDRF we offer representation in Chapter 7 Bankruptcy, also called the Liquidation Chapter. In a Chapter 7 case, the individual must disclose absolutely everything they own, or could be entitled to, and then we protect everything that can be protected with what are called exemptions. The exemptions you are entitled to use depend on the state the case is filed in. In Massachusetts we have exemptions for most common assets, including clothing and furniture, vehicles, money in bank accounts, and retirement accounts. If there is something that cannot be fully protected, the individual must decide if they would like to proceed with a bankruptcy anyway.

For real estate, Massachusetts has a generous homestead protection. A recorded homestead will protect the homeowner’s equity up to $500,000. Or even without a homestead recorded the homeowner benefits from the automatic homestead, which protects the home’s equity up to $125,000. When filing bankruptcy, your lawyer will need to review the client’s homestead carefully to make sure there are no defects. Additionally there are circumstances that could reduce the amount the homeowner is entitled to under the homestead exemption, such as how recently they acquired the interest in the home.

If something is unprotected, the Trustee in bankruptcy is in charge of liquidating that asset, and then distributing the funds to the creditors in the case. This way the individual will receive the benefits of discharging their debt, but will not walk away with a windfall at the creditors’ expense. The law is trying to strike a fair balance. In practice, most assets that the average Massachusetts resident owns can be protected in a Chapter 7 bankruptcy. Occasionally there are possible exposed assets, such as a potential claim that can be brought to recover money. If you are thinking of possibly filing bankruptcy and are unsure if there is something you could lose, speak with an attorney.

At MDRF we offer comprehensive free consultations on all debt related questions, and are happy to discuss your specific concerns. Feel free to contact us through our website, via email or by phone anytime.